Chesapeake Energy to sell pipelines to GIP for $4.08 billion

Hedging Contracts

McClendon exited gas hedging contracts held by Chesapeake Energy in late 2011, leaving the company exposed when milder- than-normal weather across the northern U.S. slashed demand for the furnace fuel and prices plunged. Alembic Global said in a May 17 note that the company may be forced to curtail spending on drilling if McClendon fails to sell enough assets.

Selling pipelines was one of the measures that billionaire investor Carl Icahn said he would push for, along with other asset sales and reduced capital spending, in a June 4 filing with the Securities & Exchange Commission. Icahn’s 7.6 percent stake won him the right to appoint one of four new directors who will replace almost half the board by June 22 under an overhaul announced earlier this week.

Chesapeake Midstream slipped 0.8 percent to $25.07 in New York on June 7, taking its decline for the year to 14 percent. Chesapeake Energy lost 2 percent yesterday, for a 20 percent slide this year.

Chesapeake held a 45.2 percent limited partner interest in the midstream partnership as of Dec. 31, according to a regulatory filing. It also jointly owns Chesapeake Midstream’s general partner with Global Infrastructure.

More Efficient

McClendon, who sits on the boards of both the Midstream pipeline company and its controlling partner, has been under a cloud since a series of media reports in March and April about personal loans he obtained using minority stakes in company- owned wells that he’d been allowed to gather for his private portfolio.

Chesapeake Energy announced May 1 that he will step down as chairman of the parent company when a replacement is chosen.

Shedding the pipelines is a retreat from McClendon’s vision of so-called vertical integration, which involves owning oil and gas fields as well as ancillary assets such as gas-processing plants, drilling rigs and hydraulic-fracturing equipment.

Chesapeake Energy said in its most recent annual report that owning pipelines makes the company more efficient at managing costs involved with gathering and processing gas.

Chesapeake Energy started a pipeline venture with Global Infrastructure in 2009 when the infrastructure investment fund, led by Adebayo Ogunlesi, bought a stake in some Chesapeake pipelines. They took Chesapeake Midstream public the following year.

Bloomberg News

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